HELENA – Montana regulators say they are ordering NorthWestern Energy to change the way it passes property tax costs on to its customers – a change they say will bring savings for residents and businesses around the state.

“This is a company that’s paying the better part of $150 million in tax,” said Travis Kavulla, the Montana Public Service Commission’s vice chair. “Their electric utility taxes increased 60 percent in a five-year time period, so we’ve become a lot more cautious and skeptical when the utility comes in asking for those increases to be passed along.”

State law allows NorthWestern to automatically increase its residential and commercial service rates to account for higher property tax expenses. But the company isn’t allowed to include the portion of that cost that goes toward its wholesale customers, which have rates set by the Federal Energy Regulatory Commission.

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The Montana Public Service Commission says NorthWestern underestimated the percentage of tax expenses that should have been allocated to wholesale customers. They ordered the utility to determine that percentage based on the amount of electricity those customers use, instead of the amount of revenue they provide.

The PSC changed its rules last year to require NorthWestern and other utilities to provide more information when they apply to pass on their tax expenses to ratepayers. Kavulla said the commission used that information as the basis for its order.

NorthWestern’s wholesale customers include large industrial users, as well as other utilities that use the company’s transmission lines. Kavulla said the current procedure redirected costs that should have gone to those customers to the company’s 350,000 residential and business users instead.

Commissioners say NorthWestern will now have to reduce its residential and commercial rates by a total of almost $3.5 million. For a typical residential customer using 750 kilowatt-hours of electricity a month, their bill will be lower by about $1.68 a year.

“Even though for an average residential consumer, it’s a small figure, this is a change that will recur year on year on year,” said Kavulla. “It could also help clarify how certain expenses associated with the transmission system are allocated in the future. In terms of a policy change, it may have a lot more consequential impact than the dollars and cents that we’re seeing right now.”

Commissioners Kavulla, Roger Koopman and Tony O’Donnell voted to start applying the change for the 2017 tax year. PSC Chair Brad Johnson and Commissioner Bob Lake opposed that motion, and instead wanted it to take effect for 2018.